Correlation Between Balanced Fund and The Fairholme

Can any of the company-specific risk be diversified away by investing in both Balanced Fund and The Fairholme at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Balanced Fund and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Balanced Fund Investor and The Fairholme Fund, you can compare the effects of market volatilities on Balanced Fund and The Fairholme and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Balanced Fund with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and The Fairholme.

Diversification Opportunities for Balanced Fund and The Fairholme

-0.2

Correlation Coefficient

Balanced Fund  The Fairholme

Good diversification

The 3 months correlation between Balanced and The is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Balanced Fund is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Balanced Fund Investor are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Balanced Fund i.e., Balanced Fund and The Fairholme go up and down completely randomly.

Pair Corralation between Balanced Fund and The Fairholme

Assuming the 90 days horizon Balanced Fund Investor is expected to generate 0.43 times more return on investment than The Fairholme. However, Balanced Fund Investor is 2.32 times less risky than The Fairholme. It trades about 0.14 of its potential returns per unit of risk. The Fairholme Fund is currently generating about -0.11 per unit of risk. If you would invest  1,946  in Balanced Fund Investor on September 5, 2024 and sell it today you would earn a total of  82.00  from holding Balanced Fund Investor or generate 4.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Balanced Fund Investor  vs.  The Fairholme Fund

Balanced Fund Investor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Investor are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Balanced Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

The Fairholme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Balanced Fund and The Fairholme

The main advantage of trading using opposite Balanced Fund and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund position performs unexpectedly, The Fairholme can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in The Fairholme will offset losses from the drop in The Fairholme's long position.

The idea behind Balanced Fund Investor and The Fairholme Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.